Why Cruise Stocks Are a Buy Now, According to This Analyst

In a landscape where economic uncertainties abound and consumer confidence swings like a pendulum, cruise operators are exhibiting a surprising resilience, particularly among their higher-income customer base. Analysts have signaled a strong bullish outlook for cruise stocks, suggesting that now might be an opportune time to invest.

Resilience Amid Economic Noise

At a recent conference hosted by J.P. Morgan, cruise operators presented a unified front, arguing that their businesses remain largely insulated from prevailing macroeconomic concerns. Despite looming uncertainties such as trade tariffs and volatility on Wall Street, these companies report that their customers are showing little worry about the economic backdrop.

While other consumer-facing sectors have been affected by warnings of reduced discretionary spending, cruise operators have held their ground. Airlines, for instance, recently noted a decline in leisure-travel demand, raising questions about the cruise industry’s future. However, cruise operators remained optimistic, indicating that the luxury vacation market remains robust.

Stock Performance and Analyst Ratings

The cruise industry’s stock performance has been tumultuous recently. For example, shares of Norwegian Cruise Line Holdings Ltd. (NCLH) experienced a significant drop of 30% in a seven-week streak, marking the longest downturn since early 2020 when the COVID-19 pandemic began. Similarly, Royal Caribbean Group’s stock (RCL) fell by 23% from its January peak.

Despite these downturns, there are signs of recovery. On a recent Monday, Norwegian’s stock rose by 4.4%, while Royal Caribbean gained 3.5%, and Carnival Corp.’s stock (CCL) saw an increase of nearly 5%.

J.P. Morgan analyst Matt Boss has raised his rating on Norwegian’s stock to “overweight” from “neutral,” projecting a price target of $30, implying a potential upside of 51% from its Friday closing price. He also reiterated his bullish stance on Royal Caribbean’s stock, setting a $298 target that suggests a 41% upside.

Solid Demand and Positive Outlook

According to Boss, Norwegian’s management indicated that there has been “zero detectable change” in booking trends despite the noise surrounding the economy. They reported no irregular patterns in booking curves, maintained consistent onboard spending (including high-discretionary options like spas and casinos), and observed stable cancellation rates.

Royal Caribbean’s executives echoed these sentiments, reinforcing their previously conveyed “extremely bullish” outlook at an investor day held just weeks before. The continuity in demand amidst economic challenges is a strong indicator of the industry’s resilience.

The Profile of Cruise Customers

Several factors contribute to the cruise sector’s insulated status. One compelling aspect is the demographic profile of the average cruise customer. Norwegian Cruise Line attracts customers with an average household income exceeding $200,000, while Royal Caribbean’s typical passenger has a household income above $125,000.

The operators also pointed out that their offerings are competitively priced when compared to land-based alternatives. Norwegian claims that its vacations are 30% to 35% less expensive, while Royal Caribbean touts a discount of 20% to 25% compared to similar land vacation experiences. For those concerned about budget constraints, these factors make cruises an increasingly attractive option.

Growing Openness to Cruising

Another noteworthy point in favor of cruise operators is the changing attitudes toward cruising among the general public. Research from Royal Caribbean suggests that 90% of adults are now open to the idea of taking a cruise vacation—an increase from the 60% to 70% who felt this way before the pandemic. This shift in consumer sentiment offers a significant opportunity for the industry to capitalize on the growing demand for cruise experiences.

Future Growth Potential

Despite the challenges posed by various economic factors, the cruise industry still represents a small fraction of the overall vacation market, estimated at about 3% to 4%. Hence, with many potential customers yet to experience a cruise, analyst Matt Boss believes there remains considerable room for growth as cruise companies continue to enhance their offerings and marketing strategies.

In summary, the cruise stocks of Norwegian Cruise Line, Royal Caribbean, and Carnival Corporation appear to be on solid footing amid broader economic concerns. Analyzing the demand trajectory, customer profile, and market potential indicates that investing in cruise operators could be a savvy decision for those looking to diversify into resilient sectors.